Threshold Modelling of Stock Return Volatility on Eastern European Markets

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Abstract

A common finding for developed stock markets is that negative shocks entering the market lead to a larger return volatility than positive shocks of a similar magnitude. The following paper considers two emerging Eastern European Markets where the first point of investigation is whether an analogous asymmetric characteristic is reflected in emerging markets. The second point of investigation is whether the findings differ depending on the institutional microstructure of the exchange being examined. Hence, econometric techniques are adjusted and a ‘double-censored tobit GARCH’ model is developed. This paper finds that no asymmetry exists on either markets and possible reasons for this are proposed. JEL Classification: G14, G15, P21, P34. Copyright Kluwer Academic Publishers 1997

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